Wednesday, January 11, 2012

Country Risk

I was burned in Argentina. And in Saudi Arabia. China, too. Personally.

I've watched others within companies where I've worked experience disasters in India, Pakistan, China, Libya, etc.

These disasters were mostly commercial issues. Mostly related to legal maneuvers by either the government itself, or advantage taken by local business people utilizing leverage their local governments provided. Mostly limited in scope, but only through good fortune.

Most of these countries have a history of business train wrecks. They go back on promises, change the rules, toss agreements aside when it is convenient, or use their legal system to take advantage. Then they "reform", claim they are anxious for direct foreign investment, invite capital back in. And then the cycle happens again.

Why these situations happen is all over the map, and could undoubtedly fill volumes.

My work lesson is in how you deal with these types of opportunities/problems as an individual manager. So here are my thoughts, developed through a couple of trips to the school of hard knocks on this subject.

1. Just say no. If a country has a history of fleecing foreigners, or of foreign investors being mistreated, it will probably happen again. If possible, just stay out altogether.

2. Limit your exposure. Put as little in the country as possible. Take out what you can whenever possible.

3. Find a solid partner. A manager, investor or adviser. Get someone who can see trouble coming and help you develop a plan to deal with it.

4. Trust but verify. Trust should be earned in such places, not assumed. Check out the reputation of anyone you will be dependent upon.

5. Control the venue. Contracts are great, but they are even better if you control where they will be enforced. Don't accept a third world court venue where you will lose on knowledge of local law, access to resources, and sympathy.

6. Anticipate problems. Use history, current events, and adviser information. Put together plans to deal with issues before they happen.

7. Communicate with your superiors. Sooner or later something bad will happen. It's important they are aware of the risks before a bomb drops.

International business is hard. But for many companies, it's essential to success and can't be ignored. But appropriate caution and preparation will prevent a disastrous or, at the least, a very unpleasant experience.

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